Fast-food chains go to war with labor board

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Business groups are up in arms over a National Labor Relations Board (NLRB) decision that they fear could demolish the legal wall between corporations and their franchises.

The NLRB’s finding that McDonald’s has joint employer status, along with its franchisees, over the chain’s thousands of workers could expose the company to claims from workers who say their labor rights have been violated.

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If it stands, the determination could lead to an uptick in lawsuits against franchisors and force corporate management to the table in collective bargaining situations.

Industry groups are pledging to fight the determination, saying it threatens to blow up a business model that withstood the Great Recession as other sectors faltered.

“This legal opinion would upend years of federal and state legal precedent and threaten the sanctity of hundreds of thousands of contracts between franchisees and franchisors,” said International Franchise Association President Steve Caldeira.

Unions and their allies say the decision merely responds to an evolution in the franchise industry that has enabled companies to wield substantial control over stores while insulating themselves from labor and workplace disputes.

Corporate management of McDonald’s franchises, they argue, goes well beyond setting protocol for food preparation and other activities needed to protect its brand. Unions say the company’s control effectively extends to working conditions and employment decisions.

The group Fast Food Forward has been at the forefront of a national push for higher wages for workers at McDonald’s and other fast-food restaurants.

“As the federal governments determination shows, McDonald’s clearly uses its vast powers to control franchisees in just about every way possible,” said Kendall Fells, the group’s organizing director. “It’s time the company put those same powers to work to do something about the fact that its workers are living in poverty.”

The finding by the NLRB’s Office of General Counsel follows a series of allegations dating back to 2012 that McDonald’s franchises — and their franchisor, McDonald’s USA LLC — violated the rights of workers in response to protests for higher pay.

Of 181 cases involving McDonald’s filed since November 2012, the board ruled that 68 have merit and 43 are baseless. Sixty-four remain under investigation.

Most important, the general counsel said that formal complaints naming McDonald’s USA as a “joint employer respondent” will be issued if the cases are not settled.

McDonald’s is disputing the proposed designation, saying the company neither directs nor “co-determines” hirings, firings, wages or other terms or conditions of employment at its franchises.

“McDonald’s also believes that this decision changes the rules for thousands of small businesses, and goes against decades of established law regarding the franchise model in the United States,” said Heather Smedstad, senior vice president of human resources at McDonald’s USA.

The argument was echoed by a series of industry groups and lawmakers.

Rep. John Kline (R-Minn.), chairman of the House Education and the Workforce Committee, decried the decision as the latest in a string of handouts from an “activist” NLRB to labor unions.

David French, the National Retail Federation’s senior vice president for government relations, said the determination is evidence that the labor board had become “an adjunct for organized labor.”

“The last thing this economy needs is decisions like this which merely serve to stall job growth and diminish much needed capital investment,” French said. “When a government agency unilaterally decides to unravel the long established and successful business relationships between franchisees and franchisors, the entire business community reacts.”

But other groups question the notion that the decision will mean the end of the franchise model.

“This ruling simply means that corporations that exercise sufficient control over franchised operations cannot feign ignorance or disclaim responsibility for franchisees’ illegal acts, especially when those acts flow from the business model the lead company imposes,” said Christine Owens, director of the National Employment Law Project.

Wilma Liebman, a former longtime member of the NLRB who served as its chairwoman from January 2009 to August 2011, said that, while the decision speaks to the test the board uses to determine joint employer status, each company would be judged on the facts surrounding its own operation.

Still, Liebman said the case represented “one of the most significant issues” facing the labor board and described decisions before the agency that deal with definitions as among the most “vexing,” because they involve the changing nature of business.

Whatever the implications, business groups are vowing to fight the determination, which is likely to result in a complaint and arguments before an administrative law judge. The losing side of that case could then appeal to the full NLRB and, after that, the federal courts.

With so much at stake, a lengthy legal fight appears likely.

Smedstad said McDonald’s will contest is label as a joint employer in “the appropriate forum,” and industry groups are signaling they are prepared to join the battle.

“We certainly would fight that all the way to the Supreme Court if necessary,” said Jay Perron, the franchise association’s vice president of government relations. “Our role is to protect the franchise business model and the industry as a whole.”